We’re just having an intense internal debate in the Enterprise Irregulars group whether SAP’s Business ByDesign (ByD) is late to the market and what it all means, when hot off the press here’s a promotional video, that’s not so much ByD advertising but a SMB / SME SaaS 101, and a very good one at that (now, that was a mouthful of acronyms).

Ironically, the video makes fun of the Big Ugly Beast, ERP – which happens to be SAP’s bread and butter. (Hey, I’ve long been saying SAP should have copied a chapter from Larry Ellison’s book, invest in a SMB Startup and let it grow independently…)

…While it’s easy to declare that for small businesses without their own IT resources there is no better option than SaaS, there is no clear “winner” for large corporations. There shouldn’t be. This is not religion; it should be business decisions that these organizations have to make individually. Analysts fighting the SaaS vs. On-premise war often forget that software exist to resolve business problems. As Charles so eloquently points out, it’s the complexity of these business processes, the need for customization, the number of user seats..etc that matters, and as we move up on this scale, increasingly “traditional” Enterprise Software is the answer. I happen to believe that eventually SaaS will grow up to meet those requirements, but am not going to guess how many years it will take. In the meantime the SaaS-fans (admittedly I am one) can claim that SaaS is the future – but that does not mean Enterprise Software is dead.

The TCO Myth

Gartner argues that long term TCO of on-premise software can be lower for businesses that don’t upgrade often. Krish’s counterpoint is that businesses that stay on obsolete versions of their systems will fall behind competitors. Ben argues that many businesses are simply satisfied with their current system functionality and would derive little value from upgrades (well he refers to moving to SaaS, but that was not the original point by Gartner).

My take: sorry guys, it’s not so black-and-white. Yes, many businesses avoid software upgrades like the plague, but not necessary because they would not benefit from it: it’s all about avoiding the major cost and business disruption traditional Enterprise Software upgrades bring about. (As a background, I spent the 90’s selling and implementing SAP solutions. I still chuckle when I hear there are SAP consulting teams at my 1990-93 clients: the upgrade cycle never ends)

SaaS typically comes with more subtle and more frequent updates that don’t disrupt business. Now, let’s be fair: the SaaS market is still quite nascent, despite the fact that Gartner is ready to bury it. Our experience is with seemless Google and Zoho upgrades, or not-so-seamless but still not disruptive Salesforce.com, NetSuite ..etc upgrades. There is still nothing on the same magnitude of a SAP or Oracle Enterprise Suite, so we really do not have a lot of realistic comparison on that level…

The Pay as You Use Myth

Gartner says the old enterprise practices are seeping into the SaaS market and we are seeing push for long-term, multi-year deals with upfront payments.

Krish argues that many enterprise customers actually prefer to pay long term to avoid the hassle of monthly billing, while Ben points out the root cause of the issue is SaaS vendors not having the right tools for more granular use-based billing.

Both are right, I don’t even see this a debate (?). Years ago I had been a NetSuite customer, and was given several choices, with multi-year contract carrying significant discounts. But still, the plans were mostly seat-based, with no chance to adjust downward and not enough flexibility to account for functions used / not used. But let me say this: a lot of what we’re saying today is just business decisions, SaaS providers have better technical bakcground to offer very granular, real-usage based pricing for two reasons:

They can actually monitor what is being used (unique vs concurrent users, actual functions not just major modules)

They can invoice accordingly – the systems are now available, and I think competition will push them t create the business framework.

Coincidentally, NetSuite just announced their integration with Zuora, the billing system for the subscription economy. This is an offering for subscription-based businesses who uses NetSuite – in other words NetSuite’s customer. Now, what I really wonder about is whether NetSuite will take this opportunity and consider themselves a customer / user of Zuora’s services: i.e. step up the plate and offer true usage-based subscription models – most likely as an alternative to the current ones.

The Shelfware Problem

No, for this to come up as a SaaS-specific problem is just pathetic. Shelfware is as old a concept as Software licencing: it’s the phenomenon of being locked in to more user seats and entire modules you don’t use, often without knowing about it. Here’s a choice quote from Gartner VP Rob Desisto again, although he used it in another context:

many organizations have CRM already because it was bundled with their ERP licenses

There is nothing inherent in the nature of SaaS that would promote shelfware, in fact as I‘ve just pointed out above, technically SaaS vendors have better ability to monitor actual usage than the major nightmare of software audits in the on-premise world. There are good initiatives, like RightNow promising to end shelfware, and I trust competition will lead to more of this.

– is the Google mantra, meaning we should stop wasting time filing away information in folders, sorting, labeling it for later retrieval, when it’s so much easier to search / find it.

That is, if you know where to search. Did you discuss that project in email? Or was it a Document? A Presentation? A Spreadsheet? A Wiki? Was there a meeting on it that’s in your Calendar?

We’ve finally resolved the issue of universal search on the desktop, but not on the Web. Google’s productivity tools all have their own search facilities (I love Gmail search) but you have to execute search on an app by app basis. Even my Android-phone fares better, where I can search within a particular app or all my data.

Actionable: depending on the context you can edit a document, respond to / forward an email, IM a contact..etc on a single click, right from the search results, without having to launch the individual application.

For now Search is either accessible via search.zoho.com or by using the search box in Zoho Business – eventually all Zoho Apps will get the Universal Search box. (I have no information on how it will be implemented, but once again, context comes first: I’d expect the default to be within the specific app, other apps or “all” selectable, whereas in Business, which is Zoho’s business portal the “all” setting is more logical)

This should probably be a Tweet, but I am not smart enough to squeeze it into 140 characters – perhaps Tumblr or Posterous notes? Anyway, I am in a rambling mood – but I’ll keep it short, just pointing to stuff I read. After all, there’s a reason why my personal blog has the tagline Connecting the dots. 🙂

“The enterprise 2.0 world we live in today is transaction based, but we are now entering an era where events will replace transactions. We will move from this world where we continually have to ask questions and seek information into one where the information will seek you.”

The technical enabler is the reduction of costs for solid-state memory and the arrival of larger multi-core processors – the result is software that reacts to what we’re doing at any moment in time, instead of us pulling up big monolithic applications.

One of the architectural themes that is driving our evolution is the focus on the user’s context and workflow and avoiding the context switch as much as possible. Context switching is expensive. It destroys the flow and rhythm of a users, and is a real productivity killer, as I discussed with Larry Dignan of ZDNet last week…

…the boundary between apps tends to dissolve, as data flows contextually across apps. Apps move to the background, data and context start to dominate. In the cloud world, data is not the slave of any particular application, but flows to whichever context that needs it.

My take: CRM? I don’t even know what it means anymore… just ask Paul Greenberg about the ever expanding definition of Social CRM. It’s certainly not just one application. Same for ERP. Or Office, for that matter.

Applications will go away. Instead, we’ll have functions. Functions that sense what we are doing and offer up the right options – based on both data and perhaps our own activity profile (example: looking at a table – some might process it with a spreadsheet, others prefer a database or word processor). Or just self-acting agents. Micro-chunked functions served up software. I first discussed the concept two years ago.

Now, isn’t this in sharp contrast to what I said about Application Suites? No: first of all, that was a market-reality based view vs. visioning here. Second, it’s Suites are not necessarily monolithic giants, it’s about the integration of apps, bringing the right micro-functions available to the user at the right time in the right context, no matter what the “App” is called, and doing it all in a unified UI environment. Read more on the componentization of software here.

In my recent Suites post I said there were exactly 1.5 (one and a half) integrated full business solutions (SaaS Suite, SaaS All-In-One, SaaS ERP, SaaS SMB ERP – take your pick or create a new one) offered as a service. The one in that equation was NetSuite, and the half is SAP’s Business ByDesign.

The half is getting close to becoming full, bringing the total number of solutions to two. SAP’s ByD, originally launched in 2007 was a functionally rich solution already at launch – in fact I called it the most complete SaaS Suite not available customers. And therein lies the rub. Functionally rich, but a phantom product that only a few selected early customers could get their hands on. And it wasn’t simply a marketing / segmentation blunder as some analyst thought, it was all about architecture: SAP missed out on the economics of multi-tenancy, and realized they could not profitably operate and scale what they referred to as “mega-tenancy” – so they went back re-architecting ByDesign.

The lost 2 1/2 years were a gift to competitor NetSuite, and they milked it every possible way. SAP announced entry to the SaaS SMB space validated their market, and their own delay was an open invitation to NetSuite. As CEO Zach Nelson said at their recent earnings conference:

The aptly named Business ByNetsuite program guarantees at least 50% savings to current SAP R/3 customers relative to – watch this! – the annual maintenance fees they are now paying to SAP. Yes, it’s not a price-to-price comparison. With the perpetual licence model customers pay upfront, but are still forced to pay annual maintenance fees – with SaaS there is only a subscription fee, and now NetSuite proves it can be half of only the maintenance component of traditional software’s TCO.

Yes, NetSuite took deals from SAP and of course amidst all the chest-thumping they did not particularly emphasize the fact that that these were often divisional deals: smaller divisions of large companies, often replacing legacy systems as a result of an acquisition with the parent company running SAP. NetSuite even developed NetSuite-to-SAP connectors for enterprise reporting, fully recognizing they won’t be replacing SAP on the corporate level.

Now of course these were relatively easy wins when NetSuite was the only game in town – and that’s about to change, as SAP is getting ready for General Availability of a new Business ByDesign in July. And SAP CEO Bill McDermott fired a few salvos over to NetSuite in his announcement, as quoted by Reuters:

McDermott said he believes Business by Design’s sales will be able to quickly surpass those of NetSuite, which last year posted $167 million in revenue.

“When Business by Design is coming at them like a 99-mile-an-hour fastball, let’s see how tough they are,” McDermott said of NetSuite.

Winning against SAP when they had no relevant SaaS offering was one thing, going up against a functionally strong product will be another. NetSuite is changing tone, comparing the two offerings, as show by this slide I received from NetSuite:

This must be the first time SAP finds themselves on the wrong side of the David vs. Goliath equation (or is it the elephant vs flea? – but who is the elephant and who is the flea in the long run?). I have an issue specifically re. the functional shootout, which was rigged at best.

As for the rest of the comparisons, a fair summary is that neither side is a newcomer. SAP is the granddaddy of business processes with 30 years of experience, but they are new to operating / scaling a cloud environment – something NetSuite has a head start on them.

I have reasons to believe (more on that in another post) ByD will not be a failure this time around, and NetSuite will have to adopt to competing with a real product vs. a phantom. It will be a healthy change, with customers now having a choice of (at least) two well integrated SaaS offerings. In the end, customers win.

Call me “old school”, but I also believe in the value of having one tightly integrated system for most business needs, and I believe it’s true not only for large corporations but much smaller businesses. I don’t have CIO’s to back it up, but that’s exactly the point: I am talking about small businesses that don’t have CIO’s at all – in fact they likely don’t even have full time IT stuff ( a good reason for SaaS in the first place), so they clearly lack the bandwidth to deal with integration issues and multiple system providers.

It wasn’t just hypothetical speculation, what really prompted my post ( and hence the reference to CIOs) was a study conducted by Brian Sommer who contacted several large corporate CIOs about SaaS implementations, and found that despite improvements in technology, and easy integration by firms like Boomi, Pervasive ..etc, CIOs still prefer to buy an integrated suite of applications and deal with one vendor for most of their needs. It’s not what we think, it’s what they do – and they are the customers. Says Brian:

… the Suite approach requires the business to make compromises in areas of the business, and only works if you can run your whole business on that one suite – as soon as you need some other specialist system, or acquire another operation that you need to integrate, you’re in trouble because Suites, by definition, are not designed to make integration easy…

…Force.com essentially brings cloud apps together as a Suite by offering exactly the combination of tight integration, common interface and flexibility. Many businesses can already find everything they need on the platform, even the last critical element required for a serious business system: enterprise-class finance 😉 Many companies, especially smaller ones, don’t need a full ERP suite. They need a handful of critical applications that can grow with them.

Wow… where do I even start? Perhaps by the only statement I can agree with:

Many companies, especially smaller ones, don’t need a full ERP suite. They need a handful of critical applications that can grow with them.

Yes, of course I agree. In fact I am a small business myself, and guess what, not only I don’t need ERP, I don’t even need or use a CRM system, or one for business accounting. The only lightweight business system I use is invoicing (happens to be Zoho Invoice), but frankly, I could get away without it. Yes, some small businesses will want Accounting, and Accounting only, others will need CRM and nothing else – there are many good choices for them. And yes, FinancialForce.com (which the commenter represents) is great, and we’ve given it ample coverage @ CloudAve.

But that’s where reality ends, and plain old FUD begins. There’s nothing inherent in the “Suite approach” that would prevent customization, integration with additional systems, extension by third party apps. In fact the key difference between an integrated Suite or discrete point applications is just how much of the core business they cover natively before add-ons are required.

And here’s the ultimate irony: I was reading these “ex-cathedra” statements (that’s nicer words for BS) while sitting at NetSuite’s SuiteCloud conference, that was all about working with development partners, releasing a new version of SuiteCloud, the app development and integration platform along with SuiteFlow, a graphical modeling and customization tool, and a bunch of other announcements all geared to making and maintaining a thriving partner ecosystem, that builds on the core NetSuite functionality and delivers additional value to customers.

In fact the evening before the conference, CEO Zach Nelson spent an hour busting industry myths. Now look at the slide above: he did not talk about NetSuite specifically, he was advocating Cloud Computing / SaaS in general. That’s the somewhat usual formula: myth spread by defenders of the “old model” busted by the innovators – who would have expected the old-time FUD served up by a PR flak for another SaaS provider… 🙁

At the conference itself I saw several customers presentations, like that of Campus Villages which replaced 38 instances of MYOB + Intuit MRI with NetSuite OneWorld, including extensions like Nolan Fixed Assets and Electronic Payments, Celigo Smartclient, and are currently evaluating Adaptive Planning. Those are functions not provided by NetSuite, so guess what – they add third party apps, just like they would to Coda or any other system.

The key criteria for any software company trying to penetrate the SMB market will be vertical industry epxerience, and NetSuite has clearly stated their industry experience is Software and Services – everything else is open to the ecosystem. Case in point is manufacturing:

Suites are not customizable? Just look at Rootstock, a third-party developer house that created an entire MRP system on the SuiteCloud platform. If that’s not living proof of the system’s expandability, then I don’t know what is…

A key difference between the Force.com / Appexchange and NetSuite / SuiteCloud approach is that the former facilitates the creation of any product / utility that you can pick up from a marketplace, while programs developed on SuiteCloude all tie into the NetSuite system very closely – not only on the data but also on the UI level – i.e. the additional business functionality becomes available within the NetSuite UI. In other words they run so smoothly, the fact that parts of the system were written by a 3rd party is hardly transparent to the end user – which is just the way it should be.

So in the end, there is no hard rule that says Suites are inflexible, non-expandable: there only well-written and poorly written Suites, just like well-written and poorly-written point applications. There will be businesses who only need a few point apps, and should not think of a Suite, and others who will benefit from the All-in-One approach. It’s their choice. What they need is honest information, not FUD.

I attended NetSuite’s SuiteCloud Partner Conference last week (see NetSuite coverage @ CloudAve) and had a chance to meet CEO Zach Nelson several times: on-stage, at dinner, and a cozy small-group chat that included several Enterprise Irregulars. Michael Krigsman of the IT Project Failures fame recorded the entire conversation, and although it’s an hour long, I recommend listening to it. It’s a no-nonsense, to-the-point conversation, not a PR message.

This may just be a good time for a little backgrounder on the Enterprise Irregulars, a group I often refer to. From Michael’s post @ ZDNet:

The Enterprise Irregulars is an invitation only group comprised of top-tier enterprise analysts, observers, industry veterans, and executives. The group consists of a loose affiliation of members who make decisions entirely on a consensus basis, without formal leadership or management.

Despite the highly informal organization structure, the Enterprise Irregulars maintains an active private discussion community and members meet periodically for briefings with vendors.

I’m a proud member of the EI, in fact I am the Editor of the Enterprise Irregulars Blog, an aggregation of (selected) member posts. Publication of the EI Blog and my other gig, CloudAve are sponsored by Zoho.

Episode 2, “Suites Are Sour” is from the mini-series SuiteMates, which I admit I find hilariously entertaining, albeit rather pointless. Why? It’s run by supply chain solution provider Kinaxis, but I don’t see much direct benefit to them. I’m reminded the Bill Gates – Seinfeld commercials: what’s the point? But hey, we’re being entertained:-)

One of the biggest value drivers behind a customer’s move to SaaS is the reduced internal IT support cost a company has when using SaaS products. In the SaaS world, the vendor maintains the application not the customer. But, in a best of breed SaaS world, the customer is back to maintaining interfaces and integration aspects across a number of (SaaS) applications.

If the argument sounds familiar, it is – it was the same in the good old on-premise world, but much of it holds true in the Cloud, too. Besides, this isn’t simply Brian’s own opinion, he has conducted a poll of large corporate CIO’s and most expressed strong preference for integrated business solutions, a.k.a. “one throat to choke” (well, not exactly with those words…).

Call me “old school”, but I also believe in the value of having one tightly integrated system for most business needs, and I believe it’s true not only for large corporations but much smaller businesses. I don’t have CIO’s to back it up, but that’s exactly the point: I am talking about small businesses that don’t have CIO’s at all – in fact they likely don’t even have full time IT stuff ( a good reason for SaaS in the first place), so they clearly lack the bandwidth to deal with integration issues and multiple system providers.

This is not a popular view, after all the Millenial World View is all about open standards and APIs where best-of-breed cloud services that can seamlessly integrate and work together well. I’m all for innovation, and hope we will get there one day – but for now the existing examples are all one-off, individual integrations between specific systems, or at best, ecosystem “satellites” centered around force.com, the Google Apps Marketplace and the like. These are great solutions, but not enough to run a complete business on them. In the meantime businesses are looking for available (Cloud-based) solutions NOW. So yes, I admit, my view is less visionary, more constrained by market realities today.

Brian cites WorkDay as a potential SaaS Suite provider: they have the right DNA, coming from the Founder who built once-successful PeopleSoft, and they are building truly Millenial Software from the grounds up as Phil Wainwright eloquently points out – but for now they still have a Human Resources / Finance focus only. Far from a complete solution, just like the other successful SaaS players in the Enterprise arena, like SuccessFactors, RightNow, ServiceNow, and the like.

Yes, I hear you… I missed a big name: Salesforce.com, the GrandDaddy of SaaS or the Cloud or whatever the next fashionable name will be. An amazingly successful company, and true innovators – having started as CRM company, moving on to as Platform provider, and who knows, tomorrow it may be a Media company? 🙂 As long as the keep on moving to hot new areas, always picking the low-hanging fruit, the company and it’s stock price will remain hot. Again, a great company from an Investor’s point of view. Just not a Complete Business Solution.

One and a half SaaS Suite players

I can count the number of SaaS Business Suites that actually reached significant traction on one hand. In fact the exact number is 1.5. Yes, one and a half – and for now they mostly cater for the SMB segment, with undeniable ambitions to “grow up”.

The “One” in that 1.5 is NetSuite. Having started as NetLedger, the company has developed an integrated All-in-One solution, encompassing ERP, CRM, e-Commerce .. you name it. Those acronyms are becoming quite useless – in that respect I agree with Dennis Howlett who says we should “dump the disciplines formerly known as CRM/SCRM/SCM/ERP/3PL/HR/HCM/E2.0….etc” – hence I stick to the term All-in-One. Or Business Suite:-) It’s been a long (and winding?) road for NetSuite: developing a full suite of apps you can run a business on is by far more complex than throwing out point applications.

The company also learned the hard way that with business complexity (please note, I am not talking about Software, but Business complexity) comes a more difficult, stretched out sales process. The fact is, as much as I am a fan of the click-to-try-click-to-buy pull model, the more business areas (and stakeholders) are involved, the less feasible the fully pull model becomes. A Business Suite is not something you simply pick up from an App Store:-)
So NetSuite experimented with more direct sales model first, gradually building towards a more channel-based model, to the recently announced SP100 program in which partner VARs get the entire first year subscription revenue. Along the way they grew functional richness as well as market penetration, to the point that they often compete with Enterprise giant SAP directly. Now, let’s quickly qualify that: NetSuite is not comparable to the SAP Business Suite, but it is often an ideal satellite solution for smaller divisions of large companies, many of which just got acquired and are facing the choice of a long SAP implementation vs. a SaaS solution from NetSuite (see Ray Wang’s post on two-tier ERP strategy)

I should probably mention that way back, before their IPO and the fame that came with it (from the times of NetWho?) I was an early NetSuite customer, picking it over the market leading CRM (and I mean that as a stock symbol), simply because it had a better process flow, even for Sales, which I was heading at the time. (Yes, we got p***ed learning we’d have to create Sales Orders outside the other system, even though we had quotes in the system, only to come back and re-enter the data manually). NetSuite was simply a better CRM system, even before considering other business areas.

Parallel to our NetSuite implementation we introduced a Wiki, JotSpot, which just launched in those days (since acquired by Google) and soon we realized a lot of the support information for Sales could either reside in NetSuite or in the Wiki. This has been bugging me ever since:

Why do structured, process-oriented systems and unstructured collaboration tools live in different worlds?

Like I’ve said, I’m all for Suites, but the true Suite in my definition includes integrated collaboration and communication tools – I’m still waiting for that … perhaps not for long 🙂

Now, if NetSuite was the “one”, who is the “half”? It’s SAP’s very capable, but dormant Business ByDesign – which may just come to life later this year. But I’ve been torturing you long enough, so let’s leave that to another discussion.

No kidding… yes, I know it’s April Fools Day, but this is real – an accounting SaaS provider, no less. I once speculated on a brave new business model: Ugly Service taking commissions from the sunglasses industry… but this is beyond imagination. Ziki, the company I wrote about back then came to their senses – wonder how long it will take for Brightbooks to become … hm.. less bright?